Comparison shopping was one of the first areas of “indirect” e-commerce services. It emerged on the Web back in the mid 1990s, shortly after the debuts of the first true online retailers. Comparison Shopping engines like PriceGrabber, Shopping.com, NexTag and my own venture, MySimon, helped consumers aggregate pricing data almost instantly, and it trained a generation of consumers to seek out such tools to save them both time and money.

As the traffic and prominence of these sites grew, venture capital dollars quickly followed, and the comparison shopping category became known as much for generating outsized venture capital returns as it did for saving consumers money. But things have changed dramatically in recent years for the comparison shopping space. Whether you judge it by the traffic to these sites, the venture money raised or the recent investment returns, the party is pretty much over. Three key factors are now driving the collapse of the once-lucrative comparison shopping business:

Pricing strategies are producing diminishing returns as the price ranges across competing vendors shrink to insignificance — an effect of pervasive and readily accessible pricing information. The shopping engines are becoming a victim of their own success.

Google has dramatically changed how it treats shopping engine URLs. Now assigned “low-value-add” status, they are relegated to search-engine wasteland (third page of search results or worse). Adding insult to injury, Google places its own “Google Shopping” results right up on the first page of any product search, further limiting traffic that otherwise might have gone to the independent comparison shopping search engines.

Amazon has made a massive expansion into virtually every area of consumer goods, offering a huge selection, “good-enough” pricing, personalized shopping recommendations and top-notch convenience tools like Amazon Prime. This powerful combination ensures that customers often begin and end their virtual shopping trips on the Amazon site because leaving to find a slightly lower price is just too much trouble.

Today’s consumers have figured out that their time is now worth more than potential savings they might find through price comparisons. They need a more compelling reason to venture off of Amazon — such as a more compelling shopping experience, unique or curated product selection, or better customer service. Merchants trying to attract customers with lower prices must make them much lower — a virtually impossible strategy as overall margins continue to shrink and Amazon’s economies of scale grow.

E-retailers are acutely aware that they must adapt to this new reality and find new ways to differentiate themselves. Increasingly, they are competing by providing a superior customer experience. They streamline the shopping experience and engage us by making it more enjoyable — from the time we load the Web page to the day the package arrives at our doorsteps. It’s the best way to get consumers to shift their loyalties in this post-pricing-centric era. Customer service quality has replaced price point as the key e-commerce metric.

For example, Zappos keeps customers so satisfied that they routinely pay up to 10 percent more than they might pay elsewhere. The entire company is aligned around customer service, and customer comments — good and bad — are regarded as treasures to be mined. The company even relocated to Las Vegas because the region had a larger pool of call center experience. In the Zappos philosophy, deliver happiness to the world and profits will follow.

More recent e-commerce entries take this trend a step further, getting quite creative as they seek to provide value beyond the price tag. ModCloth combines exclusive fashion items sourced from small labels around the world with amazing social engagement tools, generating passion and loyalty among their customers. One Kings Lane lets consumers purchase luxury brand items for less in limited-quantity flash sales of overstocked, out-of-season or otherwise excess goods.

The Science of Customer Satisfaction

Zappos, One Kings Lane, ModCloth and broader online retail aggregators like Amazon make things so simple and comfortable that it isn’t worth our time to leave their sites on a price-shaving quest. However, because their customer-centric initiatives focus more on customer experiences and satisfaction, the value they deliver tends to be subjective and difficult to measure.

Consider Yelp and Amazon, which juxtapose customer comments with five-star ratings that rely on individual viewpoints. It is not uncommon to see a four-star rating associated with a terrible experience, and a two-star rating with a pretty good one. Shoppers have a hard time basing informed purchases on such input. Meanwhile, merchants have a harder time figuring out what to fix, where to invest and how they really stack up against their competitors on objective measurements.

“Knowing where to invest your resources is critical, because you can’t be good at everything,” says Frances Frei, Harvard Business School professor and co-author of “Uncommon Service: How to Win by Putting Customers at the Core of Your Business.” “You must identify and deliver on the service dimensions your customers value most, and strategically underperform on the ones they value least.”

For “Comparison Shopping 2.0” to really take off, the market needs comprehensive tools that will give online merchants the information they need to out-service their competitors, and help shoppers differentiate between those merchants.

One company seeking to fill this need is StellaService, which continuously measures and rates the customer service performance of online retailers. The company leverages a network of full-time service analysts and mystery shoppers to collect hundreds of data points around the customer service performance of each retailer it evaluates. The company then makes the data available to retailers to benchmark against peers and competitors, enabling companies to identify strengths and weaknesses, and adjust accordingly. Merchants can also see the effect of new customer service initiatives or investments in the performance data. In addition, merchants whose service is rated high enough qualify to display the StellaService seal, which signals the quality of the expected shopping experience to consumers.

With customer service now the differentiator, merchants need to distill huge amounts of qualitative data and are ready to pay for it. Meanwhile, consumers are looking for purchasing guidance beyond the price point.

Comparison Shopping 2.0

Standing out from the crowd is a tall order for today’s online retailers. Lower price points don’t cut it anymore. In a way, online merchants are a victim of their own success — price-comparison tools are what brought consumers online in the first place. Now the price spread across online merchants has narrowed, and Google search changes have further limited SEO-based comparison shopping.

Comparison Shopping 2.0 makes pricing take a back seat to customer experiences. Merchants with the best online service offer live customer support, respond to inbound messages in real time, ship quickly and don’t haggle over refunds.

To support this process, an emerging class of comparison shopping strategies, tools and measurements are delivering the right kind of data and analytics. They extract actionable insights and let merchants know where they need to improve. For the first time, online retailers can measure the return on investment they get for implementing new customer satisfaction technologies and improving their hiring and training processes.

Merchants want to win big with customer service, and customers need a way to choose the right merchants. Technologies and services that enable uncommon customer service will redefine e-commerce in the years to come.

Of the companies mentioned in this post, ModCloth and StellaService are NVP portfolio companies.

Joshua Goldman brings to Norwest Venture Partners more than 20 years of operational experience, having been a repeat entrepreneur, CEO, board member and investor in several high-growth technology companies including MySimon. He focuses on investments in consumer-facing Internet products and services including search, e-commerce, social networking and digital media. His current investments and board seats include ModCloth, Quirky, Lumosity, Gilt Groupe, Sojern, RetailMeNot and StellaService. He also holds board observer or advisory roles with Retrevo, Apigee, Sabre Holdings and JiWire.

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